OPEC to cut production after oil prices tumble amid coronavirus concerns
Oil prices continue to fall on Friday, with OPEC looking to slash production in a bid to halt prices sliding further, though Russia is yet to greenlight the cuts.
Oil prices continue to fall on Friday amid coronavirus concerns, prompting OPEC to propose slashing production to stop prices falling further, though Russia has not yet greenlit the proposal.
Brent crude is trading 4% lower at $47.76 a barrel, while the US West Texas Intermediate is also down 4% to $43.89 a barrel as of 11:35 (GMT) on Friday.
On Thursday, OPEC met in Vienna and proposed cutting production by a further 1.5 million barrels of oil per day (mb/d) in a bid to halt oil prices falling any further as investors grow increasingly concerned about the coronavirus outbreak.
‘The COVID-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters,’ OPEC said in a statement on Thursday.
‘Global oil demand growth in 2020 is now forecast to be 0.48 mb/d, down from 1.1 mb/d in December 2019. Moreover, the unprecedented situation, and the ever-shifting market dynamics, means risks are skewed to the downside.’
Goldman Sachs sees oil demand falling into negative territory
OPEC has already slashed its demand forecast in half from where it was three months ago. But even its 0.48 mb/d growth estimate looks too upbeat to some analysts, with Goldman Sachs believing that demand could slide into negative territory in 2020.
‘While such cuts will help normalize oil demand and inventories later this year, they can’t prevent an already started large oil inventory accumulation,’ Goldman Sachs wrote in a note.
‘Further, the expected size of the OPEC+ cut of c. 1.0 mb/d will remain well short of our newly increased -2.1 mb/d expected global demand loss in 1H alone.’
In fact, the US-based investment bank believes that oil demand will contract by 0.15 mb/d this year, down from its expected growth of 1.1 mb/d prior to the COVID-19 outbreak.
Brent has hit the lowest level since 2017 this week, with OPEC’s steps to calm markets doing anything but that, according to Joshua Mahony, senior market analyst at IG.
‘The weekly chart highlights the breakdown below $50.26 support, with the next major support found at $44.53,’ he said. ‘Further downside seems likely from here, a break through $59.67 required to negate the bearish signal that comes with this recent breakdown.’
Looking at the four-hour chart, we can see the recent decline has brought us into an oversold stochastic reading below 20.
That may not necessarily mean an impending rally, yet the crossover we are seeing does allude to a potential easing of the selling pressure for the short-term. Should we post a rebound, it would likely be a retracement and provide another shorting opportunity.
Watch for a rise through the 20 mark on the stochastic to bring about a heightened chance of such a retracement. However, whether we see that move, further declines look likely if this virus continues to spread. A rise through $53.84 would be required to negate this bearish view.
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